The 2020 pandemic of coronavirus Covid-19 will have long lasting affects on global supply chains that will be felt way beyond the panic buying seen in the UK recently.
Many supply chains will struggle to manage the impacts of the virus, which is set to dominate the country for months to come and will threaten the survival of businesses and transport infrastructures around the world.
It has been widely reported that supermarket shelves are void of many essentials in the UK due to the stockpiling as a result of fear from the virus and the potential of having to be isolated, which in some cases may be for many weeks. The question is; why are the shelves still empty after a number of days when many of the out of stock items come from within the UK. I believe the easiest answer is that supply is outstripping demand, as there is clearly spare capacity for UK hauliers within the market. This is reinforced with the likes of event and container logistics to name just two sectors that have been dramatically affected by the current situation, who now have spare capacity to assist. Therefore, this would indicate a mixture of shortage of supply from UK manufacturers (i.e they can’t produce it fast enough to meet demand) or a bottle neck at supermarket distribution centres. It could also be a combination of both.
We then have to look at the wider supply chain to understand how long this issue will last and what will be the long term affects for UK businesses.
With the original source of the outbreak in China, that also coincided with the Lunar New Year celebrations when all the factories close, which meant that many businesses could not open until early March. In fact, some areas of China are still closed or not fully operational, but the majority of areas are now working as normal.
Having said that, due to the extended closure (circa 8 weeks) many businesses in the UK are running low on products they import from China. As a huge majority of this freight comes to the UK via sea, which usually takes around 30 days port to port, it could be mid-April before some of these items are hitting the shelves at the very earliest.
To compound this issue, due to the number of blank sailings from China and inactivity, demand is now outstripping supply and therefore pushing seafreight rates upwards. Furthermore, the weak pound (as a result of Brexit) has steadily been decreasing further in value which makes it more expensive to purchase stock and pay for freight, which is transacted in US Dollars or Euros.
You may be surprised to know that only 7% of our imports (by value) came from China in 2018*.
Europe, USA and rest of the World.
Now the virus is firmly embedded in the UK, Europe, USA and also present in many other countries, a global lockdown is starting to take place. We have already seen severe flight restrictions from Europe to the USA (and vice versa), which have been extended to the UK. As all passenger flights carry airfreight cargo, this will reduce the capacity in the network as flights are grounded. As a result, airfreight prices will increase significantly for the limited space available, if any.
Despite many European countries being in lock down, freight is still currently being permitted to travel across borders, but volumes are down and many businesses are closed or do not want to purchase internationally in fear of a global recession that may be the result of this virus.
Price increases or reductions?
One would think that all of the above will inevitably increase prices. It is my opinion that yes there will be spikes that increase prices to high levels for certain products or services temporarily, but overall I believe volumes will fall significantly and many businesses will suffer with a large number going out of business as a result. The drop in volumes will lead to heavy discounting as competition increases for the small amount of business available across all sectors, but not limited to supply chains.
It will take many months for the economy to return to the same level as prior to the outbreak, but only the history books will record the true affect of the 2020 coronavirus Covid-19 outbreak.
About the author of this post
Steve White is a Chartered Member of the Institute of Logistics and Transport and has over 24 years experience working within logistics and supply chain.
*Source : House of Commons Briefing Paper Number 7379, 5 November 2019 Statistics on UK trade with China.